What it is:
In the tax world, a parsonage allowance is gross income.earned by members of the clergy but excluded from
How it works/Example:
Let's say John Doe is a pastor at the XYZ Church. He earns $25,000 a year, which he uses to pay his mortgage, utilities and grocery bills.
When John Doe files his tax return at the end of the year, he can exclude the $50,000 parsonage allowance from his gross income. The church must be sure to designate the $50,000 as a parsonage allowance, however.
Why it matters:
The IRS ministers' wages, offerings and fees they receive from performing marriages, baptisms, funerals, etc. A parsonage allowance is tax-deductible when it comes to calculating taxes, but it is not tax-deductible when it comes to self-employment tax. If John Doe were a self-employed pastor, his parsonage allowance would therefore become taxable.